Section 54 exemption: possession date of an under-construction flat treated as the purchase date for tax relief.

For section 54 exemption, an under-construction flat booked under an agreement for sale was treated in substance as purchased on the date possession was obtained, because title did not pass immediately and the purchaser entered initially only as a licensee. The real character of the transaction prevailed over its form, and substantial pre-possession payment supported that view. As the possession date fell within the statutory time period from transfer of the original residential property, the exemption was available. The fact that the purchase consideration was funded through repayment of housing loan instalments was held irrelevant to entitlement under section 54.

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Issues: Whether, for the purpose of exemption under section 54, the date of actual possession of an under-construction flat should be treated as the date of purchase, and whether the assessee was therefore entitled to the deduction.

Analysis: The flat was booked under an agreement for sale governed by the Maharashtra Ownership Flats Act, 1963. The agreement did not transfer title immediately and contemplated possession only after construction, with the purchaser entering the premises initially as a licensee. The consideration was substantially paid before possession, and the Court applied the principle that the real character of the transaction must be seen in substance. On that basis, the relevant date for purchase was held to be the date on which possession was obtained. Since that date fell within the statutory period from the sale of the original residential property, the source of funds used for repayment of housing loan instalments was held to be irrelevant for section 54.

Conclusion: The assessee was entitled to exemption under section 54, and the date of possession was treated as the date of purchase of the new residential house.

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